374 F.

3d 1044

COVAD COMMUNICATIONS COMPANY, Dieca

Communications, Inc., d.b.a. Covad Communications
Company, Plaintiffs-Appellants,
v.
BELLSOUTH CORPORATION, BellSouth
Telecommunications, Inc., Defendants-Appellees.
No. 01-16064.

United States Court of Appeals, Eleventh Circuit.

June 25, 2004.

Kimberly L. Myers, Tony G. Powers, Rogers & Hardin, LLP, Atlanta,

GA, Michael J. Guzman, Washington, DC, for Plaintiffs-Appellants.
A. Stephens Clay, IV, James F. Bogan, III, Kilpatrick & Cody, J. Henry
Walker, Ashley B. Watson, Marc William Franklin Galonsky, Marc Gary,
BellSouth Corp., Atlanta, GA, Jeffrey W. Sarles, Stephen Michael
Shapiro, Mayer, Brown, Rowe & Maw, Chicago, IL, Michael K. Kellogg,
Aaron M. Panner, Mark C. Hansen, Kellogg, Huber, Hansen, Todd &
Evans, P.L.L.C., Washington, DC, for Defendants-Appellees.
Richard G. Taranto, Farr & Taranto, Washington, DC, for Amicus Curiae
Verizon Communications, Inc.
Appeal from the United States District Court for the Northern District of
Georgia.
ON REMAND FROM THE SUPREME COURT OF THE UNITED
STATES
Before BARKETT and MARCUS, Circuit Judges, and HIGHSMITH * ,
District Judge.
BARKETT, Circuit Judge:

After our decision in this case was issued on August 2, 2002, Covad

Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir.2002), the
Supreme Court vacated our judgment and remanded for further consideration in
light of its recent decision in Verizon Communications Inc. v. Law Offices of
Curtis V. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004).
Having carefully reviewed this opinion, we find that Trinko's interpretation of
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct.
2847, 86 L.Ed.2d 467 (1985), the leading case finding liability under 2 of the
Sherman Act for refusal to cooperate with a rival, now forecloses several (but
not all) of Covad's claims. Other claims are now barred by our recent en banc
decision in BellSouth Telecommunications, Inc. v. MCImetro Access
Transmission Services, Inc., 317 F.3d 1270 (11th Cir.2003) ("MCIMetro II").
2

This suit was brought by Covad, a DSL internet service provider, against
BellSouth, a regional telephone service provider that also sells DSL service.
Covad and BellSouth entered into an interconnection agreement pursuant to the
1996 Federal Telecommunications Act ("FTCA") to allow Covad to provide
DSL service over BellSouth's existing telephone lines. Covad alleged that
BellSouth had engaged in exclusionary conduct that violated the Sherman
Antitrust Act, the FTCA, and various state anti-monopoly statutes. Covad also
made various state breach of contract and tortious interference with business
relations claims.1

On BellSouth's 12(b)(6) motion to dismiss for failure to state a claim, the trial
judge threw out all of the counts relating to the Sherman Act except for two,
allowing Covad to proceed with its allegations of predatory advertising and
monopoly leveraging. The district court also allowed Covad's counts under
state antitrust law and state law for tortious interference with business
relations.2 All other causes of action, the district court found, addressed conduct
implicated by the FTCA, and as such failed to state claims under the Sherman
Act.

On appeal, we held first that the FTCA's savings clause, 3 as well as evidence of
congressional and executive intent, unambiguously showed that there was no
plain repugnancy between the FTCA and the Sherman Act, and thus that there
could be no implied repeal of or immunity from the antitrust laws.

Second, in reviewing the district court's ruling that Covad had failed to state an
antitrust claim, we found that Covad's causes of action under the Sherman Act
fell into three kinds of alleged anticompetitive conduct: denial of the use of
"essential facilities" (the network of phone lines); a refusal to deal; and price
squeezing.4 The first two categories of conduct (essential facilities and refusal
to deal) relied on the same set of alleged facts: sometimes an outright denial of

access to BellSouth's network and facilities, sometimes a denial of access on

reasonable terms, with monopolistic intent. We concluded that, on a motion to
dismiss, Covad had pleaded facts sufficient to meet the "exceedingly low"
threshold for stating an antitrust claim with respect to all three categories of
conduct. Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev.
Corp., S.A., 711 F.2d 989, 995 (11th Cir.1983). We also reversed the district
court's dismissal of Covad's breach of contract, FTCA, and tortious interference
with business relations claims.5 We now revisit Covad's claims in light of
Trinko.
I. Trinko
6

We begin by noting that the Court in Trinko approved our view that the FTCA
savings clause barred a finding of implied antitrust immunity. Trinko, 124 S.Ct.
at 878. Thus, it is now clear that the FTCA and the Sherman Act were
expressly intended to coexist. Emphasizing that the FTCA also does not create
new claims that go beyond existing antitrust standards, id., the Court then
proceeded to consider whether the conduct of which Trinko complained
violated the Sherman Act.

Trinko originated in a complaint brought by AT&T and other competitive local

exchange carriers ("CLECs") before the New York Public Service Commission
("PSC") and the Federal Communications Commission ("FCC"). The complaint
alleged that Verizon, the incumbent LEC in New York state, had failed to fulfill
its obligations under 47 U.S.C. 251(c)(3) to provide access to Verizon's
operations support systems ("OSS"), one of several "unbundled network
elements." OSS access allows a CLEC to relay orders for service through an
electronic interface with Verizon's ordering system, thus enabling a CLEC to
fill its customers' orders. Trinko alleged that Verizon had delayed the filling of,
or neglected to fill at all, CLEC customer orders. The FCC and the New York
PSC opened parallel investigations of Verizon that led to a series of PSC orders
and an FCC consent decree. The day after Verizon entered its consent decree
with the FCC, one of AT&T's customers, the Trinko law firm, brought a claim
under 2 of the Sherman Act. Trinko argued that Verizon's failure to fulfill its
251(c)(3) obligations was part of an anti-competitive scheme to discourage
customers from becoming or remaining clients of CLECs. Such conduct,
Trinko alleged, constituted a refusal to deal with rival firms under 2 of the
Sherman Act. As the Supreme Court describes it, Trinko's complaint set forth
only a single example of the alleged failure to provide adequate access: the
discriminatory handling of CLEC customer orders that led to the PSC and FCC
investigations.

The Court held, first, that Trinko failed to state a recognized Sherman Act
claim under existing refusal-to-deal precedents. Trinko, 124 S.Ct. at 880. The
Court found that Verizon's failure to provide OSS assistance to AT&T did not
amount to an effort at monopolization. Rejecting Trinko's reliance on Aspen,
the Court noted that Aspen was "at or near the outer boundary of 2 liability."
Id. at 879. The case before the Court involved none of the Aspen indicators of
anticompetitive conduct and so did not fit within Aspen's "limited exception."
Id. at 880.

In particular, the Court observed that Aspen involved a unilateral termination of

a "voluntary (and thus presumably profitable) course of dealing." Id. (emphasis
in original). But Trinko's complaint, the Court noted, "does not allege that
Verizon voluntarily engaged in a course of dealing with its rivals, or would ever
have done so absent statutory compulsion." Thus, Verizon's "prior conduct
sheds no light upon the motivation of its refusal to deal." Id. Furthermore, the
two cases differed in terms of pricing behavior. In Aspen the defendant's
rejection of an offer to sell its services to a competitor "even if compensated at
retail price," id. (emphasis in original), could support the requisite inference of
monopolistic intent. By contrast, Verizon's reluctance to interconnect at the
cost-based rate of compensation under 251(c)(3) is a neutral fact that does not
support an inference of monopolistic intent. Id.

10

More fundamentally, the Court found that Aspen involved a defendant whose
failure to sell even at retail cost to a competitor was a failure to sell otherwise
publicly marketed services. In the case before it, the Trinko Court noted, "the
services allegedly withheld are not otherwise marketed or available to the
public." Id. at 880. The FTCA had created a "brand new" sharing obligation:
"the wholesale market for leasing network elements." Id. (quoting Verizon
Communications v. FCC, 535 U.S. 467, 528, 122 S.Ct. 1646, 152 L.Ed.2d 701
(2002)).

11

In support of its 2 claims, Trinko also argued that Bell Atlantic failed to
provide AT&T with access to its "essential facilities." The Trinko Court
rejected this argument to the extent that it was distinct from Trinko's general
2 argument. Trinko, 124 S.Ct. at 881. Despite having been invoked by some
lower courts, observed Justice Scalia, this doctrine has never been recognized
by the Supreme Court as established law, and in any case AT&T was not in fact
deprived of such access. Id. at 880-81 (relying on P. Areeda & H. Hovenkamp,
Antitrust Law (2003 Supp.), for the proposition that essential facilities claims
should be denied where a state or federal agency has the power to compel and
regulate sharing).

12

In the final part of its opinion, the Court observed that the FTCA created a
broad and detailed regulatory environment that effectively abrogated the need
for antitrust scrutiny in the case before it. The PSC and FCC investigations,
orders, and consent decree in Trinko showed that the FTCA's distinctive
regulatory regime was working just as Congress intended it to. The Court stated
that federal courts are ill-equipped to handle cases alleging violations of 251(c)
(3) duties to provide access because such allegations involve complex and
constantly changing interactions between competitive and incumbent LECs.
Antitrust courts should not be in the business of supervising highly detailed
decrees on an ongoing basis. The Court noted that the FTCA does not authorize
judges to invoke the Sherman Act in this context; rather, the 1996 act is itself
an effective and even more ambitious mechanism for regulating the telecom
industry. Trinko, 124 S.Ct. at 881-83. The FTCA attempts nothing less than to
"eliminate the monopolies enjoyed by the inheritors of AT&T's local
franchises." Id. at 883 (quoting Verizon, 535 U.S. at 476, 122 S.Ct. 1646). By
contrast, 2 of the Sherman Act seeks merely "to prevent unlawful
monopolization." Trinko, 124 S.Ct. at 883 (emphasis in original).6
II. Covad's Claims after Trinko

13

As noted, we grouped Covad's Sherman Act claims into three forms of alleged
anticompetitive conduct: refusal to deal, essential facilities, and price
squeezing.

14

Trinko requires us, first, to reconsider whether Covad's refusal-to-deal

allegations, if true, would state an antitrust claim under the "limited exception"
of Aspen. Trinko, 124 S.Ct. at 880. In our earlier opinion, we distinguished
Aspen from the instant case by noting that Covad was both customer and
competitor of BellSouth, whereas the Aspen parties were solely competitors of
each other. Trinko, however, treats the interconnection agreement between
AT&T and Verizon as a mandatory accord between competitors, not a
voluntary agreement between customers. Trinko, 124 S.Ct. at 880. That
Verizon also supplies wholesale unbundled network elements at a cost-based
rate to AT&T does not, in the Court's view, make the relationship a noncompetitive one. Moreover, Trinko now effectively makes the unilateral
termination of a voluntary course of dealing a requirement for a valid refusalto-deal claim under Aspen. The relationship between AT&T and Verizon was
mandated by the FTCA, and thus cannot be said to have initiated a "voluntary"
course of dealing, profitable or otherwise. For the same reason, Verizon cannot
be said to have failed to make available to AT&T otherwise publicly marketed
services, whether at retail or a lower cost. Trinko emphasizes the coercive
effect of the FTCA on incumbent LECs such as Verizon who but for the

FTCA would not be required to make their network elements (including

OSS) available to third parties such as AT&T. In short, Covad's refusal-to-deal
claims do not survive Trinko and must be dismissed.
15

We consider next whether our application of the essential facilities doctrine to

Covad's claims under this theory satisfies Trinko. Our earlier opinion quoted
Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d
1406, 1413 (7th Cir.1995), to the effect that the essential facilities doctrine has
been endorsed by the Supreme Court and remains valid until rejected by it. In
Trinko, however, the Court stated that it would neither endorse nor reject the
essential facilities doctrine. Trinko, 124 S.Ct. at 881. By contrast, the Court
does endorse the view of two antitrust scholars that the doctrine is only viable
where there is indeed unavailability of access. Id. Where a state or federal
agency is authorized to compel access to a competitor's infrastructure, as under
the FTCA, Trinko states that an essential facilities claim should be denied. Id.
Thus, Covad's allegations under the essential facilities doctrine also fail to
survive Trinko.

16

Third, we must consider whether Covad's price squeezing allegations are now a
matter for FTCA regulatory enforcement rather than antitrust law. As to these
allegations, Trinko does not offer any definitive guidance. The plaintiffs'
amended complaint in Trinko did not state any price squeezing claims, and the
Court did not specifically address the issue in its opinion. BellSouth argues that
the Fourth Circuit dismissed a price squeezing claim similar to Covad's in
Cavalier Telephone, LLC v. Verizon Virginia, Inc., 330 F.3d 176, 181, 190 (4th
Cir.2003), and that the Supreme Court's denial of certiorari in that case, 540
U.S. 1148, 124 S.Ct. 1144, 157 L.Ed.2d 1041 (2004), supports affirming the
district court's judgment in the instant case. But the "denial of a writ of
certiorari imports no expression of opinion upon the merits of the case." United
States v. Carver, 260 U.S. 482, 43 S.Ct. 181, 182, 67 L.Ed. 361 (1923).

17

We believe Covad's price squeezing claim survives because it is based on

traditional antitrust doctrine and is not specifically barred by Trinko. As such,
however, Covad's complaint must contain allegations that the two basic
prerequisites for a showing of price predation under 2 of the Sherman Act
have been met. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509
U.S. 209, 222, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993) (finding that the
prerequisites for recovery on a claim of price predation under 2 of the
Sherman Act are the same as those for recovery on a claim of price
discrimination under the Robinson-Patman Price Discrimination Act, 15 U.S.C.
13(a)). First, Covad must allege that "the prices complained of are below an
appropriate measure of its rival's costs." Brooke Group, 509 U.S. at 222, 113

S.Ct. 2578. Second, Covad must allege that BellSouth had "a dangerous
probability[] of recouping its investment in below-cost prices." Id. at 224, 113
S.Ct. 2578. Rereading Covad's complaint, we find that the allegations
contained therein, although not as closely tied to these two prerequisites as they
could have been, are sufficient to state a claim under 2 of the Sherman Act.
18

With respect to the first requirement, Covad alleges that

19

The wholesale prices BellSouth offers to ISPs for DSL service, as well as its
retail prices for combined DSL and Internet access service, are set so low
relative to its unbundled wholesale loop prices that Covad cannot meet
BellSouth's wholesale or retail prices and still make a reasonable return on its
investment. If Covad charged retail DSL/Internet access customers the same
price as BellSouth does, or charged comparable wholesale DSL prices, Covad
could not recover the cost of providing the service, e.g., loop costs, collocation
costs, transport costs, corporate overhead and sales and market costs.

20

Covad Complaint at 92. Whether the last sentence in this passage reflects "an
appropriate measure of [BellSouth's] costs," Brooke Group, 509 U.S. at 222,
113 S.Ct. 2578, is a factual matter for the district court to determine at a later
stage of proceedings. For purposes of the pleading stage, Covad's complaint
meets the first Brooke Group prerequisite for a showing of price predation.

21

With respect to the recoupment requirement, Covad alleges that

22

If BellSouth had charged itself the same wholesale price for loops, BellSouth
could not make a profit from its DSL service at current prices ... BellSouth
achieves the unlawful price squeeze by allocating costs so as to apportion only
a de minimis cost to the loops over which it provides its own DSL service ... As
the costs are presently allocated, BellSouth must necessarily realize a
significantly higher profit margin on its wholesale sales (for which it faces no
competition) than it does on the corresponding retail sales (for which Covad is
attempting to compete). BellSouth intended this artificial cost allocation to
harm Covad, and it did.

23

Covad Complaint at 93-95. These allegations suggest that BellSouth is

compensating for deliberately reduced profits on the retail end of its operations
with correspondingly greater profits on the wholesale side, in order to stifle
competition from firms such as Covad that are both wholesale customers and
retail rivals. We find that these allegations are sufficient to allege "a dangerous
probability" that BellSouth will "recoup[] its investment in below-cost prices."

Brooke Group, 509 U.S. at 224, 113 S.Ct. 2578. Whether the facts contained in
Covad's complaint and in the record will bear out the recoupment allegation
against BellSouth is also a matter for the district court to determine at a later
stage, not on the basis of a motion to dismiss for failure to state a claim. Taken
together, Covad's price predation allegations meet the "exceedingly low"
threshold of sufficiency that a complaint must meet to survive a 12(b)(6)
motion. Quality Foods, 711 F.2d at 994-95 (finding that "we must accept the
facts pleaded as true and construe them in a light favorable to plaintiffs").
24

Nor are Covad's price squeezing claims barred by Trinko's discussion of the
FTCA's regulatory priority over antitrust law enforcement. See Trinko, 124
S.Ct. at 882 (finding the FTCA regime to be "an effective steward of the
antitrust function"). The Trinko Court observed that federal courts are illequipped to manage the complicated disputes over 251(c)(3) duties that
frequently arise out of telecom interconnection agreements. Id. at 882-83
(finding that the costs of antitrust intervention in this context exceed the
benefits and stating that "[a]n antitrust court is unlikely to be an effective dayto-day enforcer of [the FTCA's] detailed sharing obligations"). Instead, courts
should defer to the FTCA's preexisting regulatory framework rather than try to
adjudicate complex Sherman Act lawsuits in the telecommunications area.

25

Here, we find that Covad's price squeezing claims depend upon Covad's FTCAmandated interconnection agreement with BellSouth only in a circular sense.
Covad alleges that the wholesale prices BellSouth charges ISPs for DSL
service, and the retail prices it charges individual customers for combined DSL
and Internet access service, are significantly lower than the unbundled
wholesale loop prices BellSouth charges Covad and other CLECs pursuant to
the interconnection agreement. If it is true that the wholesale prices BellSouth
is charging ISPs for DSL service, and the retail prices it is charging individual
customers for combined DSL and Internet service, are "below an appropriate
measure of [BellSouth's] costs," Brooke Group, 509 U.S. at 222, 113 S.Ct.
2578, that fact suffices to satisfy the first prong of a price predation offense
under 2 of the Sherman Act. As noted above, whether the unbundled
wholesale loop prices BellSouth charges Covad pursuant to the interconnection
agreement are the "appropriate measure of [BellSouth's] costs" is a matter for
the trier of fact to determine. That these two measures may be the same does
not somehow immunize BellSouth from the application of traditional antitrust
principles. The unbundled wholesale loop prices that BellSouth charges Covad
are made available to Covad pursuant to 251(c)(3) and 252 of the FTCA.
Section 251(c)(3) requires BellSouth

26

to provide ... nondiscriminatory access to network elements on an unbundled

basis ... on rates ... that are just, reasonable, and nondiscriminatory in
accordance with ... this section and section 252 of this title.
Section 252(d)(1), in turn, provides that
27

[d]eterminations by a State commission of the just and reasonable rate for ...
network elements for purposes of subsection (c)(3) of [section 251] shall be
based on the cost (determined without reference to a rate-of-return or other ratebased proceeding) of providing the ... network element ... and
nondiscriminatory, and may include a reasonable profit.

28

As this language makes clear, the FTCA employs the same baseline standard
namely, "cost" for determining the validity of an ILEC's prices as does
the Brooke Group antitrust test of price predation, which asks whether "the
prices complained of are below an appropriate measure of its rival's costs."
Brooke Group, 509 U.S. at 222, 113 S.Ct. 2578. Thus, the at-cost measure that
Covad invokes for purposes of stating a predatory pricing claim is tied to the
FTCA only in a very formal, circular sense. To say that Covad's price
squeezing claim defines the "appropriate measure of [BellSouth's] costs," id., in
terms of an obligation created by the FTCA is to say very little when the FTCA
itself relies upon "cost" as the appropriate measure by which to determine
interconnection and network element rates. We conclude that Covad's price
squeezing claim is based on traditional antitrust standards. As the Trinko Court
noted, while the FTCA "does not create new claims that go beyond existing
antitrust standards," it also "preserves claims that satisfy existing antitrust
standards." Trinko, 124 S.Ct. at 878. Our responsibility under Trinko to
harmonize the Sherman Act and the FTCA does not entail excluding facially
valid antitrust claims at the pleadings stage.7

29

We turn next to Covad's FTCA and state law breach of contract causes of
action. Neither of these is affected by the Trinko decision. As noted earlier, the
district court dismissed these claims on the ground that they must first be
brought before a state PSC. In our initial opinion in this case, we reversed the
trial court's dismissal in light of our holding in MCIMetro I, 278 F.3d at 1237
(holding that state PSCs are not authorized by 252 of the FTCA to interpret
interconnection agreements). In a subsequent en banc opinion, however, we
overturned this judgment and held that state PSCs do have jurisdiction to
adjudicate disputes over and interpret the terms of FTCA-mandated
interconnection agreements. MCIMetro II, 317 F.3d 1270. Covad may now
bring those claims before the relevant state PSCs, and judicial review of state
PSC determinations is available in the federal courts pursuant to 47 U.S.C.
252(e)(6). Accordingly, we now affirm the trial court's dismissal of Covad's

FTCA and state law breach of contract causes of action.

30

Finally, we find that Covad's state law claims for tortious interference with
business relations are wholly untouched by Trinko. These claims do not
implicate any obligations arising under Covad's interconnection agreement with
BellSouth, and so Covad may proceed with those claims after Trinko as before.

31

To summarize, in light of Trinko we now affirm the district court's dismissal of

Covad's refusal to deal and essential facilities claims. In light of MCIMetro II,
we now also affirm the district court's dismissal of Covad's FTCA and state law
breach of contract claims. As in our earlier opinion, however, we reverse the
district court's dismissal of Covad's price squeezing and tortious interference
with business relations claims. This case is now remanded to the district court
for further proceedings consistent with this opinion.

32

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Notes:
*

Honorable Shelby Highsmith, United States District Judge for the Southern
District of Florida, sitting by designation

Only one of Covad's twenty-four counts relied directly and explicitly on the
FTCA: count four, misappropriation of confidential customer information

The parties later stipulated to the dismissal with prejudice of all of these
surviving counts. A judgment dismissing the action in its entirety was issued on
October 11, 2001

The FTCA provides that "nothing in this Act or the amendments made by this
Act shall be construed to modify, impair, or supersede the applicability of any
of the antitrust laws." Telecommunications Act of 1996, sec. 601(b)(1), 152
note, 110 Stat. 56, 143 (1996)

We treated Covad's monopoly leveraging claim as a theory that applied to all

three categories of BellSouth's alleged anticompetitive conduct, rather than as a
distinct count. As for Covad's predatory advertising claim, we note only
thatTrinko does not seem to bar Covad from proceeding with this cause of
action, assuming that it not implicate any duties under the FTCA.

The district court dismissed the breach of contract and FTCA claims for lack of

jurisdiction, finding that they must first be presented to state public service
commissions (PSCs). In reversing these dismissals, we relied onBellSouth
Telecomm., Inc. v. MCIMetro Access Transmission Servs. Inc., 278 F.3d 1223
(11th Cir.2002) ("MCIMetro I"), which held that the state PSCs did not have
jurisdiction to interpret and enforce interconnection agreements under the
FTCA. Having found that the FTCA savings clause did not supersede other
state or national laws, we reversed the trial judge's dismissal of the state law
tortious interference claims as preempted by the FTCA.
6

In a concurring opinion, Justices Stevens, Souter, and Thomas found that

Trinko had no standing to bring an antitrust claim in this case. Only AT&T
could do so

It is true that the same set of facts that Covad cites in support of its price
squeezing claim might also be actionable under the FTCA. If BellSouth has
sold (or is now selling) wholesale DSL service to ISPs at prices lower than
those it charges Covad, as Covad alleges, BellSouth may well have violated the
252(d)(1) requirement of "nondiscriminatory" pricing for unbundled network
elements. But such a claim which Covad has not made in this case would
involve a dispute over the terms of the FTCA-mandated interconnection
agreement between BellSouth and Covad. As we explain below, pursuant
toMCIMetro II, a claim directly under the FTCA must be brought in the first
instance before the relevant state PSCs.